Jennifer Webb is a first year JD candidate at Osgoode Hall Law School and currently enrolled in the course Law & Social Change: Law & Music, in Winter 2011. As part of the course requirements, students are asked to write a blog on a topic of their choice.

Although the definition of cloud computing can be somewhat hazy, the growth and popularity of “clouds” is not. In addition to being an integral tool for contemporary businesses, web-based cloud applications are giving consumers what they want: a convenient, reliable, and most importantly, green and affordable way to share and manage their data or watch and listen to media. In light of the CRTC’s recent decisions on usage-based billing (UBB), will consumers continue to look to the clouds for their entertainment and business needs?

Sony recently announced the Canadian launch of its new video streaming application: “Video On Demand powered by Qriocity™”. The latest blockbusters from NBC, Paramount, Sony, Disney, Fox and Warner Bros. are available for rental at competitive prices. Sony also offers a similar music streaming application: “Music Unlimited powered by Qriocity™”. This service, which is not available in Canada yet, offers millions of songs in its catalogue, including tracks from independent labels as well as giants such as Universal, Warner, and EMI. The overwhelming success of the service in the U.K. and Ireland, which debuted in December 2010, has contributed to this rapid expansion.

More and more bandwidth-intensive services are being launched. The increased demand has not been accompanied by the required infrastructure expansion. This has led to heavy traffic on Internet Service Provider (ISP) wireline networks. These networks, which are owned and operated by the large ISPs such as Bell, Telus, Rogers, and Shaw, are then leased at wholesale rates to smaller ISPs. The smaller ISPs compete by offering lower rates and typically do not cap their usage like their large counterparts. By offering flat fees and unlimited usage, small ISPs have become the provider of choice for the movie watching, video-game playing, tune streaming, heavy-bandwidth user.

The trend towards cloud computing has caused a frenzy of new entrants into the market all looking to capture a piece of this expanding pie. Even ISPs are finding ways to get a piece of this new business trend. Bell Canada recently announced the release of its new cloud-based application centre for small businesses. Bell is offering innovative and cost-effective productivity applications similar to those offered by large players such as Google and Yahoo! The Bell platform includes accounting, project management, collaboration, and customer relationship management applications. Despite the potential technical issues inherent with any web-based application such as internet connection, speed, or security concerns, private consumers and small businesses are increasingly turning to cloud-based applications as a cost effective alternative to hardware intensive desktop software.

A disproportionate consumption of bandwidth can be attributed to a minority of internet users. This disparity has put pressure on the CRTC. Large ISPs are looking to the regulatory body to cultivate fair solutions to ensure that heavy users pay for their appropriate share of bandwidth. The large ISPs are concerned with the heavy congestion on the networks caused by the smaller ISP’s high-usage clientele. They assert that conservative users should not have to subsidize the consumption of heavy users. The CRTC came up with some controversial solutions allowing large ISPs to raise the wholesale price of bandwidth and implement usage-based billing on their wholesale customers (the small ISPs).

This decision will only directly affect the 5% of internet users who are served by these smaller ISPs. However, the impact of these decisions would essentially eliminate the competitive internet marketplace the CRTC seeks to achieve. It threatens the livelihood of the smaller ISPs who will undoubtedly be forced to increase their prices, adopt a UBB regime or implement bandwidth caps. Some see this as a ploy by the large ISPs to cripple their smaller ISP competitors and indirectly disincentivize other innovative providers of cloud-based applications by curtailing internet usage.

Companies like Netflix, Inc., who offer unlimited streaming of movies and television shows for a flat monthly rate fear that the decision to implement UBB on smaller ISPs will be bad for business. Having enjoyed much success in the US and Canada, Netflix is concerned that the relatively small usage cap provided for by larger ISPs in Canada, and expensive overuse costs will deter customers from signing up for their service.

On February 3rd, the federal broadcast regulator announced that they will delay the UBB billing implementation by 60 days. The CRTC will revisit the UBB decisions, with “fairness” to consumers and small ISPs at the top of its agenda. The future of cloud-applications is not looking gloomy, so perhaps the most logical way to ease the congestion and market asymmetry is to let true market forces prevail, encourage consolidation of the small domestic ISPs or welcome foreign competitors with the capital to develop the infrastructure. Either way, let’s increase the number of paths to the clouds!

One Response to “Consumer: Time to get your Head out of the Clouds?”

Wow that was unusual. I just wrote an really long comment but after I clicked submit my comment didn’t appear. Grrrr… well I’m not writing all that over again. Anyways, just wanted to say fantastic blog!

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